Debra Borchardt
A new report from GreenWave Advisors on the cannabis banking industry estimates that California will collect $5.2 billion once the state implements its adult use marijuana market. Including sales tax, that number could rise to $6.2 billion.
Analyst Matt Karnes wrote, “With other new state markets planned for 2018, we estimate total legal marijuana retail revenues of approximately $12.1 billion, or $14.5 billion including sales tax.” Karnes continues to believe that by 2021, all 50 states and Washington D.C. will have some sort of legalized medical marijuana if not a fully legalized market which would result in retail revenues of $30 billion ($36 billion including sales tax).
Most banks do not service cannabis companies with GreenWave estimating that only 5% of financial institutions are on the record as having a relationship with a known marijuana business. Karnes believes this lost opportunity for the banks will drive new federal legislation. In the meantime, the industry has been pursuing its own solutions.
Dispensaries usually have ATM machines available for cash purchases and some engage in a cashless ATM, which essentially functions as a debit withdrawal to the dispensary. Others use a third party to transact the purchases, prepaid cards or mobile wallets. These wallets transfer money from the shopper’s bank account to the dispensary. Some of these mobile wallet companies include PayQwick, CanPay, Tokken and SingleSeed.
GreenWave noted that this banking and payment challenge has created opportunity in the industry. “The land grab is significant (over 7,000 financial institutions in the U.S.) and the successful rollout of these product offerings will likely mitigate one aspect of cannabis investment risk.”
Cannabis Fin Tech Solutions
Kind Financial was a cannabis banking pioneer with its Link to Banking (LTB) platform. The company is headed by former FinCen official Tom Fleming. “LTB assists financial institutions comply with regulatory guidelines by leveraging a proprietary technology platform that tracks and analyzes transactional data enabling banks to identify reportable suspicious activity,” wrote Karnes. The KIND Financial company also provides software that tracks cannabis from seed-to-sale and can track the flow of funds.
Hypur is a software platform that can audit a company in real time to make sure it is in compliance with the law. It can also provide a connection to the point-of-sale system and allow the banks a way to reconcile cash collections with deposits. This company includes John Vardaman, who worked at the Department of Justice and helped to pen the Cole Memorandum.
Safe Harbor Banking Solutions is an original player that launched in Colorado and more recently in Hawaii. Its platform provides an automated front office to help banks bring on marijuana businesses and monitor them. It also handles the back office work of compliance and monitoring. It charges a subscription fee for the service and will soon be available in eight additional states with plans for 20 states in 2018. Safe Harbor is a subsidiary of Partner Colorado Credit Union.
Banking Solutions
Since the big banks have refused to engage with cannabis companies, credit unions have stepped up and Colorado led the way.
The Fourth Corner Credit Union applied for a master account at the Federal Reserve Bank of Kansas City and was denied. The bank filed an appeal. The San Francisco Federal Reserve Bank has shown its willingness to take these types of deposits, so it’s possible that could help Fourth Corner in its quest.
Partner Colorado Credit Union says it handles $80 million a month in marijuana business deposits but is limiting its exposure to the industry to only 10% of its assets.
Legislation
“The Secure and Fair Enforcement Banking Act of 2017 (Senate Bill S1152 and House Bill HR2215) has been proposed to create protections for depository institutions that provide financial services to cannabis-related businesses,” said Karnes. “While there is support on both sides of the aisle, the timing of a vote is unclear.” Karnes maintains that the Trump administration’s stance toward banking deregulation could be a positive for the cannabis industry.
Karnes concluded, “There is no one answer and we think there will be a patchwork of alternative offerings.”
